Sticks And Stones Part II

SnP500 remains in consolidation range now sporting a Potential Positive Reversal Buy Setup which usually works during a bull run. There are 2 scenarios:

1.) The marginal higher highs higher lows is actually a prolonged shallow type w-x-y for the 4th wave that complements the 2nd wave. Much more prolonged consolidation range for the 4th will most likely invalidate the w-x-y wavecount;

2.) It is a Potential Ascending Wedge which other EW'ers may interpret as an Ending Diagonal or Terminal Triangle for the 5th wave and thus SnP should start collapsing right now OR should start collapsing after a minor a-b-c up happens on the intraday charts that in many cases would not go into a higher high corrective rally for the e-wave of an a-b-c-d-e Terminal Triangle.

Bigger picture pattern for Dow Jones has been deviating from SnP500 since May 2013 on the daily chart; which indicates a Potential Running Correction as it produced a i-ii-iii-iv-v run down in Jan/Feb 2014 which can be interpreted as either a C-wave of a 2nd wave or a 4th on the weekly chart. More likely a 4th wave but a 2nd wave rally off the Nov 2012 higher low bottom cannot be discounted which should result in a 'Irrational Exuberance' rally (See previous Instablogs for Dow Jones' bigger picture EWA).

The rally off Feb 5, 2014 remained a mystery with no definitive impulsive 1-2-3 run up from the April 15 higher low bottom. Instead a high probability corrective rally happened from May 20 to June 9 which is basically an a-b-c when viewed on the intraday charts as noted on the daily chart.

For those EW'ers who follow Glenn Neely's Mastering Elliott Wave guidelines the marginal higher highs and higher lows corrective patterns can be interpreted as actually a qualified Running Correction which he specified MUST result in an extended 3rd wave in order to be validated as such.

Compq remains bullish on the daily which should result in another higher high rally sooner or later. Russell2000 can still go lower, how much lower is subject to speculations.

Intraday charts for the major averages remain highly divergent subject to numerous different interpretations. Thus, rather than wreck my brain on which one is the highest probability it is better to keep track of how they perform on the daily charts with Dow Jones the primary target for Daytraders or Trend Traders as it tested it's 50ma Support. SnP500 is too close to it's 50ma Support it might proved a magnet hard to resist which basically should force Dow Jones to break below it's 50ma Support.

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Trading Strategies:

UP HERE .... the threat of a major pullback of 5-10% or a 10-20% minor correction remains as debatable as ever among traders and investors. Majority of CTAs (Certified Technical Analysts) are not trained to analyze prolonged marginal higher highs higher lows including those who prefer Basic Elliott Wave Analysis.

Fortunately, Mastering Elliott Wave (by Glenn Neely) provides guidelines on how to analyze marginal higher highs higher lows patterns which in some cases can result in a Running Correction. Unfortunately, there is no way of validating whether a Running Correction is forming unless and until an extremely strong rally actually happens which MUST result in an extended 3rd wave if the pattern is a 2nd wave. 5th for those forming as a 4th.

Unfortunately, SnP500 and Dow Jones are divergent thus high-confidence EWA cannot be achieved at this moment. Obviously, a breakdown should make the Running Correction Scenario for Dow Jones highly questionable but not necessarily invalidate the ongoing pattern.

A vertical breakdown for SnP500 will be considered a validation that an Ending Diagonal or Terminal Triangle for the 5th wave is the correct analysis and should favor the medium-term bears in the weeks/months ahead.

For me:

1.) The last YM Daytrade proved to be a failed trade as Dow Jones diverged greatly against SnP500 on the intraday charts by severely collapsing thus resulting in minor losses.

For those who used trailing stops for SPY, SSO, or ES, their Daytrades should have been proven successful;

2.) Will try to initiate a Swing Trade for YM concentrating on Dow Jones' pattern instead of being too dependent on what SnP500 is doing;

3.) Will tighten further the trailing stops on the SSO Swing Trade Buys of April 15, 2014.

For the more aggressive traders; the uptrend remains viable as long as SnP500 and Dow Jones remain in whipsaw mode. The problem is how to find the most appropriate stop loss against a potential Breakdown Scenario to minimize potential loss - while avoiding being a victim of the seemingly crazy whipsaws. Which basically depends more on the tolerance level of each individual trader.

Basically, a rally tomorrow should prove another opportunity to trend trade the Bull Run on the daily/weekly charts as there is no indication the trend is in the process of being broken.

But Friday is coming soon. Traders will be more cautious as the news of Argentine Default lingers in the air. Thus, better wait for Monday and see if investors fear of a potential financial crisis subsided and Daytraders start speculating for another 'Buy the Dip' opportunity.

For the futures markets, they are collapsing overnight with 1946 the minute-degree i-ii-iii-iv-v nominal target for ES. Lower range is 1939 that can be used as a stop loss ... or wait for a rebound after the cash markets open at 9:30 am. If SnP500 goes lower on 30min chart then it can take up to 2 pm before the cavalry arrives to save the day. If no recovery rally by 3 pm forget getting in and better wait for Monday.

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March 31 4:23 pm Update:

The markets suffered gruesomely today as a result of the unexpected gruesome bombing of civilians in Gaza gruesomely replayed repeatedly all day long by CNN until Dow Jones lost almost 300 points. Similar to what happened in May 6, 2010 when they kept replaying the gruesome Greece Riot never before seen by vast majority of investors (including CNBC).

At any rate, we might be witnessing the start of 'bad news' fatigue among bullish traders and investors as they suffered months of never-ending Ukraine + Gaza Occupations exacerbated lately by the Argentina Default and the gruesome bombing in Gaza. They might just throw in the towel and call it quits.

Basically, the 10 to 20% Correction far too many analysts kept predicting since May 2013 may actually happen now.

There are still 2 bullish scenarios on the weekly:

1.) There was a 2 weeks strong rally from 11/28/2011 to 12/05/2011 that got followed by 1+ week of run down that is not yet being reflected at the top run of the blue 5th. Thus, if the current run down does not go on for more than 2 weeks there is still a good possibility another two to 3 weeks of strong rally could happen to finalize the blue 5th wave. This is the one I was pinning on for my recent daytrade after 3 weeks of flattish consolidation range but now has become highly questionable as SnP500 suddenly collapsed on the daily;

2.) The pink count is not a high probability but if SnP500 goes into relatively strong 4 weeks run down or 4 to 6 weeks of consolidation range then the pink v-th wave should happen to finalize the ii-ii-iii-iv-v pink count with the blue 5th the top of the pink iii.

Right now, medium-term trade to the upside is not advisable as SnP500 and Dow Jones collapsed today. Perhaps trend trading Compq (NASDAQ:QQQ) might prove another successful daytrade as the Nasdaq remains very bullish on the daily.